Market Week: May 14 2012

The Markets Once again, problems in Greece meant problems for equities. For a change, the small-cap Russell 2000 and the Nasdaq suffered the least, though both have now lost more than 6% since their late March high. Uncertainty about the future of the eurozone's financial compact helped push the yield on the 10-year U.S. Treasury note to levels last seen in January. Meanwhile, oil prices continued to sink toward $95 a barrel, while gold plunged below $1,600 an ounce.

Last Week's Headlines

• Neither far-right nor far-left parties, who gained power in Greece's recent elections because of opposition to austerity measures imposed by the country's European partners, were able to form a coalition government. As a result, the eurozone's bailout fund held back €1 billion of an aid package due last Thursday, though it agreed to pay out €4.2 billion so Greece could meet immediate obligations. The situation increased uncertainty about Greece's future in the eurozone if no coalition government is formed or if a new government rejects budget cuts needed to meet eurozone guidelines.
• Bankia, which is one of Spain's largest banks and has suffered from bad loans made to real estate developers, will receive a bailout from the Spanish government, much as banks in the United States did during the 2008 financial crisis. The government said it will take a 45% stake in the bank as part of its efforts to overhaul the country's overall banking system.
• The Federal Reserve said use of consumer credit increased 7.75% in the first quarter of the year. Almost all of the increase came in non-revolving debt such as loans for autos, education, boats, and mobile homes.
• Wholesale prices fell 0.2% in April, marking the seventh straight month in which price increases have slowed. The Bureau of Labor Statistics said that put the year-over-year wholesale inflation rate at 1.9%.
• Strong U.S. exports in March couldn't keep up with higher oil costs and imports of Chinese goods, according to the Bureau of Economic Analysis. As a result, the trade deficit saw a dramatic 14.1% increase in March as exports rose nearly 3% while imports were up more than 5%.
• The Treasury Department said a combination of higher tax receipts and less spending on Medicare, education, and defense led to the federal government's first monthly budget surplus since September 2008. Nevertheless, the Treasury still projects an annual deficit this fiscal year of more than $1 trillion.
• J.P. Morgan Chase announced that trading in credit derivatives that were intended to hedge the bank's investment risk had cost it roughly $2 billion in paper losses.

Eye on the Week Ahead

Greece's struggles to form a government will continue to command attention; a new election will be scheduled for June if no agreement is reached. Also on tap is a scheduled Tuesday meeting between newly elected French President François Hollande and German Chancellor Angela Merkel. European growth data is due Tuesday, while manufacturing and retail sales data throughout the week will suggest the state of the U.S. economy.

Key dates and data releases: consumer inflation, retail sales, international capital flows, business inventories, Empire State manufacturing survey (5/15); Federal Open Market Committee minutes, housing starts, industrial production (5/16); Philadelphia Fed manufacturing survey (5/17); options expiration (5/18).

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Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Market Week: May 7, 2012

The Markets The Dow hit its highest point in more than four years on Tuesday, but it was basically downhill for equities after that as investors decided to take some of their year-to-date profits off the table in advance of key European elections over the weekend. The S&P 500, Nasdaq, Russell 2000, and Global Dow all had their worst week of 2012, and the Dow's 168-point loss on Friday gave the industrials their second worst week of the year. The selling helped the 10-year Treasury yield hit its lowest level since early February as prices rose. Meanwhile, oil prices slid below $100 a barrel, while gold reversed the previous week's gains, falling almost $30 back to $1,634.

Last Week's Headlines

• Unemployment fell to 8.1% in April, according to the Bureau of Labor Statistics. However, that was not necessarily good news, as the drop was largely the result of people leaving the work force. The economy created only 115,000 new jobs; that's substantially lower than the 154,000 jobs added in March or the 252,000 monthly average between December and February.
• Off with his head: The frustration about Europe's finances that has previously brought down heads of state in Greece, Spain, and Italy took its toll on French President Nicolas Sarkozy. The election of François Hollande, who campaigned against the fiscal austerity and budgetary discipline measures supported by "Merkozy" (German Chancellor Angela Merkel and Sarkozy), creates uncertainty about the future of those measures.
• The political parties that comprise Greece's ruling coalition suffered losses in the country's parliamentary elections, raising questions about whether a reorganized government would support the austerity program required for future bailout assistance.
• Spain's gross domestic product contracted for the second quarter in a row. That officially put the financially troubled country into recession; coupled with Spain's struggle to implement austerity measures, a recession could make it more difficult for the eurozone's fourth largest economy to reduce its budget deficit and meet sovereign debt guidelines. The country also received a second piece of bad news when Standard & Poor's downgraded the credit ratings of 11 Spanish banks. Meanwhile, the European Central Bank kept its key interest rate unchanged at 1%.
• The Bureau of Economic Analysis said consumer spending rose 0.3% in March and incomes grew 0.4%, helping to nudge the savings rate up slightly to 3.8% of disposable income.
• The U.S. services sector grew in April, but the 53.5% reading by the Institute for Supply Management was 2.5% lower than the one in March. However, the ISM's manufacturing index was up 1.4% from March for a reading of 54.8% and a 33rd consecutive month of expansion.
• U.S. construction spending rose 0.1% in March despite a 1.1% decline in spending on public construction such as state and local highways and schools. According to the Department of Commerce, private construction was up 0.7% from the previous month, roughly evenly divided between residential and nonresidential projects.
• Fixed-rate mortgages have hit record lows once again, according to Freddie Mac. The 3.84% average rate for a 30-year fixed-rate mortgage was almost a percentage point lower than the 4.71% of a year ago, and 15-year mortgages were at 3.07% compared to 3.89% last year at this time.

Eye on the Week Ahead

In a week that's light on economic data, investors will attempt to gauge the impact of French and Greek elections on the eurozone's willingness and ability to enforce austerity measures and debt guidelines.

Key dates and data releases: international trade, import/export prices, U.S. Treasury budget (5/10); wholesale inflation (5/11).

___________________________________________

Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

What your employer isn't doing to plan for Your Retirement

Creating your own Personal Pension
can provide you dependable, growing income.

Are you as prepared as you think?

According to your parents and grandparents, things were always better “back in my day.” While this might not be the case in every scenario, if they're talking about retirement, chances are they're right.

There has been an undeniable shift in the way companies handle their contributions to employee retirement. It's not just the farewell dinner and the gold watch we don't get anymore, although that tradition has certainly fallen out of common practice. The differences between the retirements of yesteryear and those of today are more serious—and unfortunately, often detrimental to the retiree.

The cultural effects of career-hopping

For several generations, the status quo for the typical American career path remained unchanged. People, for the most part, got a job either in the family profession or upon graduating college (or high school, if they weren't able to attend or afford college). Once they had a good job, they’d stay until retirement—often putting in 30 years or more at the same company.

However, as businesses became more competitive, there were shifts on both the employer and employee sides. Employers began to focus more on recruiting top talent, while employees started valuing higher personal satisfaction over longevity. Switching jobs in search of greener pastures has become commonplace.

During this shift, the traditional pension plan has suffered and in some cases been completely abolished.

The new face of pension plans

When lifetime of loyalty was the standard, employers offered attractive pension plans as part of a benefit package to attract and retain strong employees. For the most part, these plans were simple: Once you'd worked for the company a certain number of years, you'd continue regularly receiving a percentage of your salary when you retired. The longer you worked for the company, the greater the percentage.

These plans required little or no investment on the part of the employee. Because the brunt of the financial responsibility for a traditional pension plan falls on the employer, this option was far less attractive for businesses when short-term employment became the norm. 

Enter the 401(k). 

Introduced in the early 1980s, this alternative to pension plans was billed as having the potential to yield greater returns than a set pension while affording the employee the benefit of taking their account with them when they found a better job. The 401(k) retirement plan allows employees to contribute as much or as little to their retirement fund as they desire, and the account earns interest over time through an investment of the employee's choosing.

The first and most obvious drawback to this is the part about employee contributions. While pension plans were actually invested and paid out by the employer, 401(k)s are simply money that you've already earned, which is set aside for retirement. These plans, known as Defined-Contribution or Defined-Comp, have put the burdon of investment choice not on a professional Advisor, but on the client. What used to be the job of a department of professionals becomes your responsibility, saving the company money all along the way. 

From the corporate family to every person for themselves

In today's job industry, traditional pension plans are virtually nonexistent and when they are found they are woefully underfunded. Companies offer 401(k)s, IRAs, TSAs, and other income-dependent, interest-bearing retirement savings plans to offset the higher turnover rate—and to increase overall business profits, since these types of retirement “plans” are now what employees expect.

In any case, once you've retired, you're no longer the company's concern—you'll have to sink or swim on your own. It's important to understand the retirement investment options that are available to you in this more independent model, and make sure you're prepared to handle the burden of retirement through a plan that guarantees income throughout your golden years.

You can probably plan on buying your own gold watch, too.

To get more information on how Monolith Financial Group can help you plan for your Personal Pension give us a call (916) 367-6430

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